Over the last decade, the European Investment Bank (EIB) has consistently been at the forefront of innovation and transparency in the development of the global green bonds market. Since launching the world’s first green bond in July 2007, EIB has raised over €19bn in climate awareness bonds, making it the largest issuer in this rapidly evolving market. While the use of proceeds for all EIB’s bonds already complies with high environmental and social standards, the bank’s green bonds are issued solely to finance renewable energy and energy efficiency projects. In the last 10 years, EIB’s green issuance has supported more than 160 of these projects in almost 50 countries.
More broadly, the EIB is the world’s largest multilateral financier of climate related investment, providing over €19bn for climate action projects worldwide in the last year alone. In support of the Paris Agreement, EIB has committed to deliver climate finance globally of around €100bn in the five year period to 2020.
Extending the Green Yield Curve
Aside from underpinning the progressive diversification of the market by issuing in 11 currencies, EIB has offered green bonds across an increasingly broad range of maturities. Most recently, for example, it established a notable milestone for the market with the launch of a 30 year €1bn climate awareness bond, which was the longest SSA green bond ever issued.
An important source of demand for EIB’s November 2047 ultra-long issue was the fast-growing community of green funds that have played a key role in supporting the growth of the market over the last 10 years. However, by appealing to institutions looking for exposure to top-quality names at the longer end of the curve, the 30 year issue built on EIB’s track record of attracting an increasingly broad investor base to the green market.
In the euro market, there is already evidence to suggest that the strength of demand from mainstream investors alongside dedicated green funds has pushed secondary pricing to a premium to EIB’s conventional bonds. This is because in each case the investor is exposed to the same credit risk.
Enhancing the Integrity and Efficiency of the Market
The G20 Green Finance Synthesis Report has highlighted the lack of a common language in climate finance is one of the main hurdles that will need to be overcome if sustainable finance is to realize its potential.As Bertrand de Mazières, Director General, Finance, EIB, explains, if multilateral development banks (MDBs) like EIB work in isolation to promote this convergence of definitions, the green bond market will remain a niche asset class. Recent landmarks such as the 22 year €7bn green benchmark from France’s Trésor, which generated investor demand of more than €23bn, are highly encouraging pointers for the green capital market. Total green bond issuance of $95bn in 2016, however, remains dwarfed by the total of $97.2tr held in debt securities around the world, according to numbers published by the OECD.
As a pioneer both of new issuance and of best practice in the green bond market, EIB aims to build a “Rosetta Stone” of existing climate finance definitions with the help of all relevant market groups. In other words EIB commits to facilitate clarification and harmonisation of climate finance lexicon, a condition for green finance integrity and accountability, to both spur the sustainable growth of the green bond market and to maximize capital market support to environmental policy objectives.